Ringing in 2018 with a few real estate predictions

As the final days of 2017 approach, recaps highlighting events and results of the year are being written. While these summations are being written, writers and analysts are also evaluating 2017 for predictions of what’s in store for 2018.

Predictions for 2018’s real estate market were delivered at the 2017 Realtors Conference and Expo held in Chicago in early November by Lawrence Yun, the National Association of Realtors chief economist.

Yun says momentum from 2017’s steadily improving U.S. economy, sustained job growth, and rising confidence makes now a good time to buy a home. These positives should pave the way for an increase in existing-home sales in 2018. Threats facing an increase in home sales in 2018 include continued supply shortages, and passage of a tax bill that disincentives homeownership.

According to Yun, “Despite considerable demand all year, pending sales have lost a step in recent months because low supply is pushing prices higher and making home buying less affordable in several parts of the country.”
With a few months of data remaining in 2017, Yun estimates that existing-home sales will finish at a pace of 5.47 million – the best results since 6.47 million homes were sold in 2006. However, the forecasted increase for 2017 is only a modest .04 percent improvement from 5.45 million home sales in 2016. In 2018, sales are forecast to expand 3.7 percent to 5.67 million. The national median existing-home price is expected to rise to around 5.5 percent this year and next year.

Yun delivered caution around Congress’s House Ways and Means Committee’s legislative proposal to overhaul the American tax code stating that it could very well affect home sales and prices next year and beyond.
Yun said the tax bill in its current form is a direct tax hike on homeowners and nullifies the homeownership incentive for all but the top 5 percent of tax filers.

Earlier this year, the National Association of Realtors released a full analysis of the House Republican blueprint for reform, finding that it could negatively affect home values by about 10 percent and raise taxes on middle-class homeowners by an average of $815.

Yun said the biggest impediment to sales right now and into next year is the massive shortage of supply in relation to overall demand. A continued lag in new home construction starts in recent years is hampering homeowner turnover. Said another way, without enough new homes coming on the market, many homeowners are remaining in their homes for a longer period of time before selling, typically 10 years.

“The lack of inventory has pushed up home prices by 48 percent from the low point in 2011, while wage growth over the same period has been only 15 percent,” said Yun. “Despite improving confidence this year from renters that now is a good time to buy a home, the inability for them to do so is causing them to miss out on the significant wealth gains that homeowners have benefited from through rising home values.”

Although Yun forecasts new construction of single-family housing to jump 9.4 percent to 950,000 next year, this is still below the 50-year average of around 1.2 million starts. New single-family home sales are likely to total 606,000 this year and rise to around 690,000 in 2018.

With the Federal Reserve continuing its plan to slowly raise short-term rates, Yun believes mortgage rates will gradually climb towards 4.5 percent by the end of 2018.

“An overwhelming majority of renters want to own a home in the future and believe it is part of their American Dream,” said Yun. “Assuming there are no changes to the tax code that hurt homeownership, the gradually expanding economy and continued job creation should set the stage for a more meaningful increase in home sales in 2018.”

Yun’s predictions provide a glimpse into what can be expected as we transition into 2018. To learn how these predictions may impact your intentions to sell or buy a home in the coming year, talk with your trusted Realtor. Get their expert opinion on whether now is the right time for you to sell or buy.